What are You Waiting to Invest? Long-Term Investment in Grid-Connected Residential Solar Energy in California. A Real Options Analysis.

19 Pages Posted: 27 Aug 2018 Last revised: 12 Jun 2019

See all articles by Carlos Vargas

Carlos Vargas

University of Zurich, Department of Banking and Finance, Students

Marc Chesney

University of Zurich - Department of Banking and Finance

Date Written: May 24, 2019

Abstract

The goal of this paper is to assess the optimal choice of a household in California, United States, in terms of their decision if and when to undertake a certain investment in a residential scale, grid-connected, solar photovoltaic system, in order to obtain savings in their monthly expenditures in electricity. This irreversible option is then defined, mainly, by the initial cost of the solar PV system. For this purpose, Real Options Analysis is deployed to assess this investment opportunity for the household. This approach allows determining not only whether the investments should be undertaken or not, but also the optimal timing to do so. Results show it is optimal for a Californian household to invest in a photovoltaic system, however, some delay might be advised depending on the energy production factor of specific areas, and the expected useful life of the equipment. Furthermore, government intervention influencing subsidies and energy prices has a major effect in the length of such delay.

Keywords: Renewable Energy, Real Options, Investments under uncertainty, Photo voltaic systems, Solar PV, Renewables

JEL Classification: D81, M21, O13, P48, Q4.

Suggested Citation

Vargas, Carlos and Chesney, Marc, What are You Waiting to Invest? Long-Term Investment in Grid-Connected Residential Solar Energy in California. A Real Options Analysis. (May 24, 2019). Available at SSRN: https://ssrn.com/abstract=3231984 or http://dx.doi.org/10.2139/ssrn.3231984

Carlos Vargas (Contact Author)

University of Zurich, Department of Banking and Finance, Students ( email )

Schönberggasse 1
Zurich
Switzerland

Marc Chesney

University of Zurich - Department of Banking and Finance ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

HOME PAGE: http://https://www.bf.uzh.ch/en/persons/chesney-marc

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